vriguy (70.19)

Why not declare bankruptcy?

0

Why aren't at least some states (IL, CA, NY) declaring bankruptcy? I've read that they cannot - but I see nothing in the Constitution barring them from doing so. My reading of history is that the Colonies and the Confederate States at various times repudiated their debts - effectively the same as declaring bankruptcy. Granted, if a state were to declare bankruptcy it would cause chaos and disrupt life, but it will allow the necessary re-structuring of contracts and pensions to take place, without which there is no recovery feasible (at least in the case of states like IL and CA). The legislators in these states have shirked hard choices for decades - allowing the debt to fester and grow. It may be time to consider declaring bankruptcy.

I believe some US states partially defaulted in the early 1800s. Not bankruptcy but they negotiated with lenders to restructure their debt.

If a state tried that these days, lenders would probably sue and it would end up in the Supreme Court. Or if the credit markets collapse in response, the federal government would step in with a bailout.